2022 (10) TMI 785 - HC - GST

Input Service Distribution Credit Dispute Resolved: Petitioner Wins Challenge Against Restrictive Instructions on Tax Credit Transition

HC allowed writ petition challenging rejection of unutilized Input Service Distribution (ISD) credit. Based on judgments from other HCs, respondents ... Transition of accumulated unutilized CENVAT/ITC by Input Service Distributors under Section 140 - quashing administrative instructions prohibiting transition of ISD credit - setting aside administrative communication rejecting transition of ISD credit - prohibition on enforcement of recovery of transitioned accumulated creditQuashing administrative instructions prohibiting transition of ISD credit - transition of accumulated unutilized CENVAT/ITC by Input Service Distributors under Section 140 - The validity of instructions dated 05.07.2018 issued by respondent no.3 which prohibited Input Service Distributors from transitioning accumulated unutilized CENVAT credit. - HELD THAT: - The High Court, taking note of recent High Court precedents relied upon by the petitioner and after hearing the respondents who did not contest the effect of those decisions, held that the impugned instruction issued by respondent no.3 could not be sustained. The Court quashed the instruction insofar as it operated to prohibit ISDs from transitioning accumulated unutilized CENVAT/ITC in terms of the transitional provisions under Section 140 of the Central Goods & Services Tax Act, 2017. The Court's order proceeded on the basis that the respondents accepted that the judgments referenced covered the issue and therefore the administrative prohibition must be set aside. [Paras 2, 3]Instruction dated 05.07.2018 issued by respondent no.3 is quashed.Setting aside administrative communication rejecting transition of ISD credit - transition of accumulated unutilized CENVAT/ITC by Input Service Distributors under Section 140 - The validity of the letter dated 04.02.2019 issued by the office of the Commissioner of Central GST Audit-II rejecting the petitioner's request to allow credit of unutilized ISD. - HELD THAT: - In consequence of quashing the impugned instruction and having regard to the judicial authorities relied upon, the Court found no basis to sustain the communication dated 04.02.2019 which refused the petitioner's request. The communication was therefore declared ineffective and no effect was to be given to it, permitting the petitioner to seek the transitional relief it had claimed. [Paras 1, 3]Communication dated 04.02.2019 is set aside and no effect shall be given to it.Prohibition on enforcement of recovery of transitioned accumulated credit - transition of accumulated unutilized CENVAT/ITC by Input Service Distributors under Section 140 - Whether the respondents could be restrained from recovering accumulated credit transitioned by the petitioner as an ISD under Section 140. - HELD THAT: - Following the quashing of the administrative instruction and the setting aside of the communication rejecting the petitioner's claim, the Court restrained the respondents from enforcing any recovery of the accumulated credit transitioned by the petitioner in respect of its ISD registration. The restraint flows from the Court's determination that the administrative measures preventing transition and denying the petitioner's claim were unsustainable in the light of the authorities relied upon and the respondents' concessions. [Paras 3]Respondents are restrained from enforcing recovery of the accumulated credit transitioned by the petitioner.Final Conclusion: Writ petition allowed; impugned administrative instruction quashed, the communication rejecting transition set aside, recovery restrained, and the petitioner permitted to seek consequential relief from the respondents. Issues:Challenge to rejection of credit of unutilized Input Service Distribution (ISD), validity of instructions prohibiting transition of accumulated unutilized CENVAT credit, reference to judgments by other High Courts.Analysis:The petitioner, an Input Service Distributor registered with the respondents/revenue, challenged the rejection of its request for credit of unutilized ISD through a writ petition. The communication dated 04.02.2019, rejecting the petitioner's request, and the instructions dated 05.02.2017 issued by respondent no. 3, prohibiting ISDs from transitioning accumulated unutilized CENVAT credit, were contested. The petitioner's counsel argued that the issue was covered by judgments from other High Courts, including Bombay High Court and Gujarat High Court.In response, the respondents' counsel agreed to examine the referenced judgments and return with instructions. The matter was listed for further hearing. Subsequently, the respondents conceded to the petitioner's contentions based on the judgments cited. Consequently, the High Court allowed the writ petition, quashed the instructions dated 05.07.2018, and directed that no effect be given to the communication dated 04.02.2019. The respondents were restrained from enforcing the recovery of accumulated credit transitioned by the petitioner concerning ISD registration.As a result of the judgment, the petitioner was granted the relief sought in all prayer clauses. The petitioner was also given the liberty to approach the respondents for any consequential relief. The High Court disposed of the writ petition in the terms mentioned, providing a favorable outcome to the petitioner in challenging the rejection of credit and the instructions prohibiting the transition of accumulated unutilized CENVAT credit.